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Penalty relief for late-filed partnership returns

The IRS today released an advance version of Notice 2017-47 that provides penalty relief for partnerships that filed certain untimely returns (or made untimely requests for an extension of time to file those returns) for the first tax year that began after December 31, 2015, by the 15th day of the fourth month following the close of the tax year.

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The Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 changed the date by which a partnership must file its annual return. For calendar year partnerships, the due date for filing the annual return or request for an extension was changed from April 15 (April 18 in 2017) to March 15.

Notice 2017-47 [PDF 35 KB] states that the IRS will grant relief from certain penalties listed in the notice for any return identified in the notice for the first tax year of any partnership that began after December 31, 2015, provided that the following conditions are satisfied:

The partnership filed the returns (Forms 1065, 1065-B, 8804, 8805, 5471, or other returns) with the IRS and furnished copies (or Schedules K-1) to the partners (as appropriate) by the date that would have been timely before the amendment made by the Surface Transportation Act (April 18, 2017, for calendar year taxpayers); or

The partnership filed Form 7004 to request an extension of time to file by the date that would have been timely before the amendment made by the Surface Transportation Act and files the return with the IRS and furnishes copies (or Schedules K-1) to the partners by the 15th day of the ninth month after the close of the partnership’s tax year (September 15, 2017, for calendar year partnerships). If the partnership files Form 1065-B and was required to furnish Schedules K-1 to the partners by March 15, 2017, it must have done so to qualify for the penalty relief.

The IRS on September 12, 2017, issued an updated version of Notice 2017-47 to clarify that the penalty relief applies both to partnerships and real estate mortgage investment conduits (REMICs) that are treated as partnerships for purposes of subtitle F (concerning procedure and administration). Read the IRS transmittal message [PDF 67 KB]. The hyperlink to the notice (above) is the updated version.

Penalty abatement

The penalty relief will be granted automatically with respect to certain failures to timely file. Partnerships that qualify for relief and that have already been assessed penalties “can expect to receive a letter within the next several months notifying them that the penalties have been abated.” For reconsideration of a penalty covered by Notice 2017-47 and that has not been abated, by February 28, 2018, taxpayers are directed to contact the IRS and state that they are entitled to relief under this notice.

Taxpayers that qualify for relief under Notice 2017-47 will not be treated as having received a first-time abatement under the IRS’s administrative penalty waiver program.

As explained in a related IRS release—IR-2017-141—the IRS has projected that corporations and partnerships will file almost 6.9 million extension requests during 2017 and that the IRS expects to receive more than 4 million partnership returns during 2017.

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For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.